Introduction to Financial Management

Unit 7

Introduction to Finance

7.1 Explain the role of finance

in business

Have you ever dreamed of running your own business? You

probably have a product and a potential location in mind for

your business. But have you considered how you will obtain

money to fund your venture, or how you will handle your

finances?

Finance in Business

FI:354 Explain the role of finance in business

▪ Obtaining funds and using them to achieve

the goals of a business

� Use money effectively.

� Assist with merger

and acquisitions.

� Allocate financial capital.

� Increase profitability.

� Oversee investments.

The Importance of Finance

FI:354 Explain the role of finance in business

▪ Finance managers

� Plan and control spending

� Administration of assets

� Ensure sufficient

financing exists

▪ Financing

� Process of funding

a business venture

Multiple Choice

Finance functions are

• Planning for funds

• Raising of funds

• Allocation of funds

• All of the above

Multiple Choice

______________ is money supplied by investors, banks, or owners of a business.

• Equity

• Capital

• Income statement

• Property

Multiple Choice

The primary goal of financial management is

• to maximize the return

• to minimize the risk

• to maximize wealth of owners

• to maximize profit

Multiple Choice

Financial management aims at

• ensuring availability of enough funds

• reducing the cost of funds procured

• effective deployment of funds

• all of the above

Working Capital

FI:354 Explain the role of finance in business

▪ The difference between current assets

and current liabilities

▪ Working capital management

� Accounts payable
� Accounts receivable
� Inventory
� Cash

▪ Cash conversion cycle

▪ Return on capital

Multiple Choice

Sufficient working capital is needed to prevent a business from becoming insolvent.

• True

• False

Multiple Choice

What are the aspects of Working Capital Management?

• Receivable management

• Inventory management

• Cash management

• All of the above

Multiple Choice

To financial analysts, “Working Capital” means the same as:

• Current Assets – Total Liabilities

• Total Assets – Current Liabilities

• Total Assets – Total Liabilities

• Current Assets – Current Liabilities

Multiple Choice

Working capital is

• the amount invested in current asset

• Amount invested in Capital asset

• Both in Fixed and Current Asset

Capital Investment Decisions

FI:354 Explain the role of finance in business

▪ Long-term determinations of projects,

financing, shareholder payment

▪ Capital budgeting process

� Project profitability

� Use of equity

� Debt decision

� Profit management

Multiple Choice

____________ is the wealth in the form of money or other assets owned by a person.

• Value

• Assets

• Capital

• Valuables

Multiple Choice

The most common types of capital include personal savings, family and friends, ____________ and outside the box.

• People places

• Financial institutions

• Schools

• Loan sharks

7.2 Discuss the role of ethics

in finance

THINK ABOUT IT
Finance professionals manage a business’s money.
It’s important for them to follow ethical practices
because people inside and outside the organization
rely on them to do what is right.

Ethics in Finance

FI:355 Discuss the role of ethics in finance

▪ Ethical dilemmas for finance professionals

� Telling the truth vs. saying what employers want to hear

� Feeling pressured to support

certain business decisions

� Attempting to increase profits

in ethically questionable ways

� Overstating projections or

tweaking analyses that cause
problems in the future

Unethical Behavior in Finance

FI:355 Discuss the role of ethics in finance

▪ Greed or self-interest

▪ Short-term gratification

▪ Obedience

to authority

▪ Conformity

▪ Incrementalism

▪ Sunk costs

▪ Loss aversion

Multiple Choice

​What is the purpose of a financial audit?

• ​to define the accounting practices a company should follow

• ​to ensure that a company's accounting records are accurate

• ​to punish accountants for making mistakes

• ​to determine if a company is profitable or not

Multiple Choice

​Understanding accounting regulations is difficult because _____.

• ​regulations can be set by local, state, or federal government

• ​accounting regulations are purposely vague​

• ​all organizations use different accounting standards

• ​every industry has its own set of regulations

Multiple Choice

Publicly held corporations must follow regulations created by the _____.

• GAO

• GAAP

• SEC

• GAAS

Multiple Choice

On her way to her cubicle, Penny hears her manager scolding an intern for making a mistake. Penny knows that she was the one who made the mistake, so she goes to the manager and tells the truth. This action shows Penny's _____.

• accountability

• punctuality

• respect for diversity

• time management

Multiple Choice

Which of the following actions would be most likely to violate a business code of ethics?

• taking a day off from work for a reason that is not an emergency

• having a personal conversation with a fellow employee at work

• offering to do some of an employee's work for them

• using a computer at work to check one's social media accounts

Multiple Choice

Alex shows up for a meeting at 9:50, even though the meeting does not begin until 10:00. The first of his co-workers to make it to the meeting does not show up until 10:05. This action shows Alex's _____.

• honesty

• punctuality

• respect for diversity

• accountability

Multiple Choice

David's firm has a high school internship program. In the past, most if its applicants have been from affluent local high schools. David decides to do a presentation at a school in a low-income area to encourage more applicants from that school. This action shows David's _____

• accountability

• work ethic

• respect for diversity

• punctuality

Multiple Choice

The principles of right or wrong that guide an individual in making decisions

• Ethics

• The law

• Code of Conduct

• Integrity

Multiple Choice

Is the act of reporting unethical or illegal actions by one’s superiors or peers to authorities or to the media.  They can sometimes be viewed as traitors by their employers and co-workers.

• Referee

• Stakeholder

• Accountant

• Whistleblower

Discussion #1:
Come up with examples of
situations in which obedience
to authority could result in
unethical behavior. What
factors might be considered to
know how respond to this
situation.

7.2 Discuss the role of ethics

in finance

THINK ABOUT IT
Finance professionals manage a business’s money.
It’s important for them to follow ethical practices
because people inside and outside the organization
rely on them to do what is right.

Ethics in Finance

FI:355 Discuss the role of ethics in finance

▪ Ethical dilemmas for finance professionals

� Telling the truth vs. saying what employers want to hear

� Feeling pressured to support

certain business decisions

� Attempting to increase profits

in ethically questionable ways

� Overstating projections or

tweaking analyses that cause
problems in the future

Unethical Behavior in Finance

FI:355 Discuss the role of ethics in finance

▪ Greed or self-interest

▪ Short-term gratification

▪ Obedience

to authority

▪ Conformity

▪ Incrementalism

▪ Sunk costs

▪ Loss aversion

7.2 Discuss the role of ethics

in finance

THINK ABOUT IT
Finance professionals manage a business’s money.
It’s important for them to follow ethical practices
because people inside and outside the organization
rely on them to do what is right.

Ethics in Finance

FI:355 Discuss the role of ethics in finance

▪ Ethical dilemmas for finance professionals

� Telling the truth vs. saying what employers want to hear

� Feeling pressured to support

certain business decisions

� Attempting to increase profits

in ethically questionable ways

� Overstating projections or

tweaking analyses that cause
problems in the future

Unethical Behavior in Finance

FI:355 Discuss the role of ethics in finance

▪ Greed or self-interest

▪ Short-term gratification

▪ Obedience

to authority

▪ Conformity

▪ Incrementalism

▪ Sunk costs

▪ Loss aversion

Discussion #1:
Come up with examples of
situations in which obedience
to authority could result in
unethical behavior. What
factors might be considered to
know how respond to this
situation.

Ethical Behavior in Finance

FI:355 Discuss the role of ethics in finance

▪ Recognizing and developing ethical traits

▪ Assessing

rationalization

▪ Voicing

concerns

7.3 Explain legal considerations

for finance

THINK ABOUT IT
Many millions of people depend on the honesty of finance
professionals and the accuracy of their work. The actions of
just a few bad actors could throw the entire world into crisis.
That’s why laws exist to ensure these important tasks are
performed correctly.

7.3 Explain legal considerations

for finance

THINK ABOUT IT
Many millions of people depend on the honesty of finance
professionals and the accuracy of their work. The actions of
just a few bad actors could throw the entire world into crisis.
That’s why laws exist to ensure these important tasks are
performed correctly.

The Need for Regulations in Finance

FI:356 Explain legal considerations for finance

▪ Instances of finance mismanagement

and fraud

� In both the 20th and 21st centuries

� Significant impacts on national

and global economy

� Regulation is one of the few

safeguards against finance fraud

Discussion #1:
Is it fair to require executives
to be responsible for the work
of their accountants. Why or
why not?